The UK government has confirmed its intention to regulate crypto assets in line with traditional financial services, following responses to a consultation paper launched in February.
Under the proposals, the Financial Conduct Authority will authorise firms participating in crypto activities, including new requirements for crypto exchanges to create detailed requirements for admission standards.
The rules cover activities including operating a trading platform, the offering or lending of a cryptoasset, and swapping cryptoassets for traditional currencies.
However, the move followed a call from the Treasury Select Committee for crypto activities to be treated as gambling.
The regulations, which the government aims to bring before Parliament by 2024, focus on both stablecoins and financial promotion.
The government received 131 responses to its consultation paper, 40% of which included crypto firms and fintechs, while industry associations accounted for 27% of respondents.
In a letter accompanying the consultation result, Andrew Griffith MP, economic secretary to the treasury said: “I am very pleased to present these final proposals for cryptoasset regulation in the UK on behalf of the government. I look forward to our continued work with the sector in making our vision a reality for the UK as a global hub for cryptoasset technology.”
FCA appointed the ‘sheriff’
Following events such as the FTX scandal, which increased regulatory focus on cryptocurrency, AJ Bell head of investment analysis Laith Khalaf said the UK government is appointing the FCA as “sheriff”, rather than letting the “crypto wild west develop unchecked”.
“The decision to regulate crypto using the existing rules designed for mainstream financial services looks a sensible one,” he said. “The apparatus and resources for supervision are already there and working in tandem with regulators worldwide.
“It’s also clear that some of the key crypto activities that need regulation mirror existing services provided by mainstream financial services, and so sit better under the scope of the FCA than within gambling regulation. Whether it’s offering a crypto exchange, dealing in crypto, or issuing a cryptoasset to the public, the FCA can draw on its rules and experience of supervising these activities in traditional markets.”
He added: “There is some concern that regulating crypto in this way will legitimise it, creating a so-called ‘halo effect’. However the horse has well and truly bolted on this front, as crypto is already a mass market product. According to FCA and HMRC figures, around five million people in the UK have purchased cryptoassets, only just shy of the six million people who hold a stocks and shares ISA, a mainstream account that has been available from trusted financial providers for almost a quarter of a century.”